Cattle and hogs were both lower early Thursday. Corn and soybeans were slightly higher with wheat lower.
Cattle Futures Correct
Live and feeder cattle futures were lower early Thursday. Joe Kooima of Kooima Kooima Varilek says live cattle had three higher closes and finally got above some chart resistance on Wednesday.
However, the futures are trading back below that area with the weight of the lower equity markets.
“This last week and a half, we’ve been tied to the equity market. You can almost put a chart of crude oil up and the stock market lower over there. And that’s usually how the cattle market will go in the morning. And it’s been a lot of gaps, whether they’re lower or higher. But I do think we have a little bit of a two tiered approach in the cattle. Yes, equities lower this morning we have the war rhetoric a little bit higher especially later afternoon yesterday, so that is the culprit,” he explains.
Into Chart Resistance
The futures are also into chart resistance.
“You can draw a little bit of a downtrend line on feeders and fats we hit our head on there on Tuesday. Then yesterday we hit it a few times and had a pretty good close. But unfortunately with the equities doing what they’re doing now you have a chart that looks a little weak that we couldn’t propel up through that downtrend line,” he adds.
Feeders Watch Corn and Cash
The higher corn market has been a slight headwind for the feeder cattle futures as well as the risk off in the equity sector but Kooima says cash is moving back higher in the auction barns which is supportive.
“This week also you’re seeing southern barns $8 to $10 higher, as much as $15 higher. So, I think that’s just the number situation in the tight supply,” he says.
Higher Fed Cash This Week?
Fed cash has been non-existent so far this week and may not trade until after the Cattle on Feed Report Friday.
Kooima says last week cash was $5 lower as packers had the leverage with their kill cuts, but the volume was light and show lists were carried over. So far packers have not used the heavy weights against producers, so he is hoping packers have to bid more aggressively this week.
He says $1 to $2 higher would be a real victory. “Up until yesterday, you’re thinking that, hey, let’s try to get $3, $4, $5 better on cash just by judging where the April futures track, it is typically over $3, $4 above that. But yeah, you’re going to get a little regression today with the action of the marketplace. Packers are probably going to wait until after the on feed report,” he says.
The Cattle on Feed Report will compare to a year ago and the tightest numbers ever so the trade guess for placements is around 100%, on feed at 99% and marketings at 92%.
Packer Kills Cuts, JBS Strike
Packers had regained some leverage cutting kills and that has pushed Choice boxed beef values above $400.
The market has also absorbed the JBS plant strike in Greeley, CO as the plant has been dark the last two weeks, while cattle were diverted to Grand Island, NE and Cactus, TX plants.
Kooima says packer profits have seen a $300 to $400 swing. “The packers aren’t going to just run away with that. They’re making $100, $150 on paper. But I think they want to have maybe a few weeks of that to really get themselves in the black. And then I think they’re going to be forced to be like, all right, let’s try to make some money here. And we’re not too far away from a spring demand event, but that’s a couple of weeks down the road potentially. But those are something that’s something that we’re going to keep our ear to the ground on and just, hey, if there’s some Saturday kills starting to show up, I think that leverage swings right back to the producer.”
Hogs Consolidating
Lean hog futures were lower early Thursday with cattle and the lower equity market and have been consolidating off the highs.
Kooima says hogs are usually more recession proof and ignore the equities but there is fund long liquidation with the technical damage that was done to the charts.
“Starting last week we kind of broke a little bit of an uptrend line the cash and cutout have been relatively flat especially the cutout it goes down to $98 hits it set on $100 and back and forth we go. The cash is a little bit better this morning and is about the highest we’ve had in two weeks. The open interest every day has been declining which tells me that some of the funds are just liquidating they’re not getting short they’re just coming out of some length,” he explains.
The market is also waiting for slaughter numbers and weights to start declining with the increasing disease problems.
“Weights are a little higher than a year ago. Our kill numbers are a little bit higher as well. Not much, but we keep kind of getting preached about numbers are going to get smaller. They should be tight now with the disease aspect. So what I’m going to be looking to hear from customers in the next little while to see if these packers maybe start actually taking off a Saturday kill in the hog world that’s extremely friendly because that’s going to bolster your cutout level to a higher level,” he says.
Corn and Soybeans Higher With Crude Oil
Corn and soybeans futures are higher early Thursday adding risk premium and following higher crude oil.
He says, “I think it’s all really tied to more of the energy marketplace. You look at soy oil, look at the crude oil and what that’s doing as well. That’s keeping some bidding underneath these price levels.”
After the massive liquidation on Monday the funds have been back in buying in corn and soybeans especially as the war in Iran heats up.
“Yesterday, we kind of saw a little bit more of what’s really going on over there, as Israel is also attacking without the U.S. knowing. So I think the funds are kind of taking on that and saying, this thing is going to go on for a while. The damage has been done. Now we got oil.
Gas fields exploding. The infrastructure is going to take a long time to repair. So I think these funds are kind of in it just for a little bit more of a long haul,” he explains.
The funds are also buying grains and other markets on inflation fears as economic indicators are starting to show the evidence and impact of the higher energy markets.
“Anytime that you have a headline like that, the funds aren’t afraid to plow into some of those grains,” he says.
